WASHINGTON—Less than 20% of credit unions that become significantly undercapitalized are still active or independent, according to NCUA data.
An analysis of NCUA data by Keith Leggett, the former senior vice president and senior economist at the ABA, shows that over a 20-year period ranging from the second quarter of 1996 through the second quarter of 2016, 2,502 federally insured credit unions fell below the well-capitalized threshold (net worth ratio below 7%) after having a net worth ratio above that threshold for at least one quarter.
“This indicates that over the 20-year period, approximately one in five credit unions fell below the well-capitalized threshold,” Leggett explained on his Credit Union Watch blog. “The net worth ratio of 825 of these 2,502 credit unions fell below 4%—the threshold for being significantly undercapitalized. Only 151 of these credit unions (18%) remained active.”
The net worth ratio of 490 of these 2,502 credit unions eventually fell below 2%—critically undercapitalized.
“Importantly, only 15% of those credit unions whose net worth dropped below 2% sometime in this period remain active,” Leggett said.